[LETTERHEAD]
PROPRIETARY AND CONFIDENTIAL
July 31, 1996
Xx. X. Xxx Xxxxxxxx
Chief Executive Officer
FlashNet Communications
0000 Xxxx Xxxxxxx Xxxxxx
Xxxx Xxxxx, Xxxxx 00000
Re: Warrant Letter Agreement
Dear Xxx:
This letter is intended to confirm the agreement between ACSI Advanced
Technologies, Inc. ("ACSI"), a wholly-owned subsidiary of American
Communications Services, Inc. ("Parent"), and Website Management Company,
Inc., d.b.a. FlashNet Communications ("FlashNet"), regarding FlashNet's
intentions to grant Parent a warrant for up to five percent (5%) of
FlashNet's outstanding capital stock upon the satisfaction of certain
conditions.
FlashNet agrees that, at such time that Parent meets certain covenants
contained in certain indentures between Parent and its bondholders, FlashNet
will grant Parent a warrant (the "Warrant"), at Parent's option, for five
percent (5%) of FlashNet's then outstanding capital stock. Parent shall
provide FlashNet written evidence that Parent meets such covenants as a
condition to FlashNet's grant of the Warrant to Parent. The Warrant shall
vest on a pro rata basis in accordance with ACSI's satisfaction of a
$1,000,000 Equipment Purchase Obligation (herein so called) pursuant to that
certain Equipment Agreement (herein so called) dated July 31, 1996 by and
between ACSI and FlashNet. For example, if at such time Parent meets
such covenants ACSI has satisfied 50 percent of the Equipment Purchase
Obligation, Parent shall then be vested in that portion of the Warrant that
represents two and a half percent (2.5%) of FlashNet's then outstanding
capital stock. The strike price for the Warrant shall be $0.01 per share. The
Warrant shall expire at the later of (i) the end of the term of the Equipment
Agreement or (ii) three years from the date of the Equipment Agreement, and
may be exercised in whole or in part, on one or more occasions, on or before
such expiration date, at Parent's option.
Notwithstanding the preceding sentence, in the event FlashNet completes
an underwritten public offering of its capital stock, the Warrant shall
expire ten days after the date on which the registration statement filed by
FlashNet pursuant to the Securities Act of 1933, as amended, relating to the
sale of its capital stock is declared effective by the Securities and
Exchange Commission; provided, however, that FlashNet has given Parent
written notice of the filing of such registration statement. The Warrant
shall contain customary antidilution provisions so that, when fully
exercised, it shall at all times represent five percent (5%) of the then
outstanding capital stock of FlashNet, except that such antidilution
provisions shall expire at the earlier of the settlement date of an
underwritten public offering of FlashNet's capital stock or three years from
the date of the Equipment Purchase Agreement. Notwithstanding the foregoing,
the Warrant may be diluted by up to fifteen percent (15%) by FlashNet's
adoption and implementation of a qualified employee stock option program.
Warrant Letter Agreement Between ACSI and FlashNet
July 31, 1996
Page 2
In the event ACSI is in default under the Equipment Agreement after
notice and failure to cure as provided in Section 5 of such Equipment
Agreement prior to the earlier of (i) ACSI's satisfaction of 67% of the
Equipment Purchase Obligation under the Equipment Agreement or (ii) 180 days
after the date of the Equipment Agreement, any Warrant issued shall be
terminated and, to the extent the Warrant may have been exercised, Parent
agrees to transfer to FlashNet any stock owned by Parent that was issued
pursuant to the exercise of any Warrant. Parent agrees not to transfer the
Warrant or any stock obtained as a result of exercise thereof until ACSI's
satisfaction of the Equipment Purchase Obligation under the Equipment
Agreement.
Any notice required to be given by FlashNet to ACSI or Parent hereunder
shall be delivered via overnight delivery to 131 National Business Xxxxxxx,
Xxxxx 000, Xxxxxxxxx Xxxxxxxx, Xxxxxxxx 00000, to the attention of Xxxxx X.
Xxxxxx
Sincerely,
/s/ Xxxxxx X. Xxxxxxxx, III
Xxxxxx X. Xxxxxxxx, III
Chief Operating Officer
AGREED WITNESS
/s/ X. Xxx Xxxxxxxx /s/ [illegible]
-------------------------------- -----------------------
X. Xxx Xxxxxxxx
Chief Executive Officer
Website Management Company, Inc.
